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Fisher v. Biozone Pharmaceuticals, Inc.

United States District Court, N.D. California, San Francisco Division

March 23, 2017





         Before the court are two crossing motions to enforce the parties' 2013 settlement agreement. The plaintiff's motion (ECF No. 95)[1] seeks to enjoin the defendant from foreclosing on the plaintiff's commercial property. It also asks the court to release the plaintiff and his wife as guarantors on the property's mortgage note. This motion centers factually on the defendant's earlier assignment of a lease on the property.

         The defendants' motion (ECF No. 96) asks the court to bar the plaintiff from making further disparaging statements about them; the defendants would also compel the plaintiff to withdraw grievances that he has filed with government agencies. This motion centers factually on the plaintiff's continuing to tell third parties, after the settlement, that the defendants were engaged in, and were being investigated for, misavory business practices, including securities fraud.

         The undersigned retained jmisdiction to enforce the settlement. The court held a hearing on these motions on March 2, 2017.

         For the reasons given below, the court denies the plaintiff's motion insofar as it seeks to release the plaintiff and his wife from their" guaranties. Insofar as the plaintiff seeks to enjoin the imminent foreclosure, the court directs the parties to provide additional briefing on whether foreclosing on an underwater commercial property can constitute "irreparable injury" for purposes of an injunction. The court giants the defendants' motion. The court prohibits the plaintiff from making any further disparaging comments about the defendants. The plaintiff is ordered to frilly comply with the settlement agreement's non-disparagement term. Finally, the court fines both Mr. Fisher and Mr. Brauser (not their lawyers) for violating the settlement agreement's non-disparagement clause. The parties must remit the fines to one of the legal-aid programs listed on the State Bar of California's website.


         There is no need to revisit the parties' underlying dispute. For present purposes the stoiy can start with the 2013 settlement agreement that was meant to put that dispute to rest. Only some basic facts are necessary to understanding that agreement, the parties' later dealings, and thus the present motions.

         1. Assignment of the 580 Garcia Lease

         The parties' settlement agreement has an effective date of September 5, 2013. When they signed that agreement, plaintiff Daniel Fisher and defendant CoCiystal[2] were in the following relationship. Mr. Fisher and his wife were (and still are) the sole owners of 580 Garcia LLC, which in turn owns a commercial property located at 580 Garcia Avenue in Pittsburg, California. CoCiystal leased that property from the LLC. The LLC was the debtor on a mortgage note on the 580 Garcia property. The Fishers are personal guarantors of that note.

         Under § 3 of the settlement agreement, CoCrystal agreed to "timely perforin all [its] future obligations" under the 580 Garcia lease.[3] One term of that lease provided that the lease could be assigned only with the LLC's consent.[4] The related deed of trust on the property in rum provided that the bank could accelerate the note if the lease were assigned without its consent.[5] Assigning the lease thus required both the LLC's and (as a practical matter) the bank's consent.

         Mr. Fisher now claims that, in violation of both the lease and the settlement agreement, CoCrystal assigned the lease on 580 Garcia without the LLC's or the bank's consent. This appears to be correct. In November 2013, a third company (MusclePharm) agreed to acquire CoCrystal. Mr. Fisher and CoCrystal both tried to get the mortgagee bank to agree that CoCrystal could assign the lease to MusclePharm. It appears to be undisputed that Mr. Fisher wanted the bank to approve the assignment. The LLC was behind hi paying the note: and Mr. Fisher himself testified that MusclePharm presented a more creditworthy tenant. The bank, however, would not approve the assignment.

         Nevertheless, as part of an acquisition and asset sale, CoCrystal assigned the lease to MusclePharrn. The bank then declared an incurable default and accelerated the loan. For the next three months -April through June 2014 - Mr. Fisher stopped paying the bank; he claims to have put the money into an escrow account.

         Months later, after negotiating with the bank, CoCiystal itself bought the note. CoCiystal complains that it has received none of the money that Mr. Fisher says is in escrow. Nor has it received any of the interest that is owed on the April-June 2014 payments. The record suggests - CoCrystal's own filings suggest - that the LLC made at least some payments for subsequent months.[6] There is no dispute, however, that at least some of the payments owed to CoCrystal have not been made, so that the loan is in default. Eventually, CoCiystal decided to foreclose on 580 Garcia. It scheduled a foreclosure sale for January 27, 2017. Mr. Fisher moved to enforce the settlement agreement and sought a TRO to block the foreclosure. (ECF No. 95.) The defendants then filed their own settlement-enforcement motion. (ECF No. 96.) After a telephonic hearing with this court, just two days before the scheduled foreclosure, CoCrystal agreed to postpone the foreclosure. See (ECF No. 102.) The court denied Mr. Fisher's TRO application as moot, and the parties finished briefing the present motions.

         2. Disparagement

         hi their motion, defendants Brauser and Honig claim that Mr. Fisher breached the settlement agreement's non-disparagement clause by telling third parties, and by filing a new state-court lawsuit in which he claimed, that the defendants were guilty of the misconduct that the settlement agreement was supposed to put to rest. This too seems to be correct. The settlement's non-disparagement clause provides:

Non-Disparagement. Plaintiff agrees that he will not, directly or indirectly, in any communication with any person or entity, including . . . any third-party media outlet, make any derogatory, disparaging or critical negative statements, orally, written or otherwise, against any Defendant or any Defendant's managers, directors, officers and employees, as [sic] . . . aiding or participating in any way with any third party ... in the publication of any such derogatory, disparaging or critical negative statements agamst any Defendant.... Each Defendant agrees that it will not, directly or indirectly, in any communication . . . make any derogatory, disparaging or critical negative statements, orally, written or otherwise, against Plaintiff or aiding or participating [sic] in any way with any thud party ... in the publication of any such . . . negative statements against Plaintiff. Nothing herein shall prevent any Party from testifying truthfully in connection with any litigation, arbitration or administrative proceeding when compelled by subpoena, regulation or court order to do so.[7]

         The defendants challenge four items (discussed below) as breaching this clause. There appears to be no real dispute that the content of all the challenged communications falls within the sweep of the non-disparagement clause. That is to say, unless there is some extrinsic excuse for making the challenged comments, the non-disparagement clause covers and prohibits such communications.

         At the hearing on these motions, the defendants added that, under the settlement, Mr. Fisher was supposed to withdraw grievances that he filed with the SEC and FBI concerning the defendants - but that he has not done so. Mr. Fisher did not deny this.

         2.1 State-Court Complaint

         The first item consists of allegations in a lawsuit. In June 2014, nine months after the settlement agreement in this case, 580 Garcia LLC filed a new lawsuit in California state court. The Second Amended Complaint in that case named as defendants several of the parties to the settlement agreement: specifically, Biozone Pharmaceuticals; CoCrystal Pharma, Inc.; Elliot Maza; Phillip Frost; Roberto Prego-Novo; and Brian Keller.[8] Neither Mr. Honig nor Mr. Brauser is a defendant hi that complaint, though allegations within the pleading implicate both men by name.[9] The Second Amended Complaint alleged that the defendants "orchestrated" a "series of interrelated frauds, wrongful acts and potential white-collar crimes, " and that these included a scheme of "pump and dump securities fraud."[10] The complaint both refers to the 2013 settlement agreement in this case[11] and states that the plaintiff "began suspecting that the defendants were engaged in "inappropriate and illegal activity" in "early 2011."[12] The plaintiff eventually withdrew this pleading.[13]

         The defendants thus seem conect in arguing that this Second Amended Complaint advanced, if not "the veiy same allegations that [were] dismissed in this action, " at least charges that were covered by the settlement agreement in this case.

         2.2 The Drose Email

         On June 26, 2016 - so, again, well after the settlement agreement in this case - Mr. Fisher emailed journalist Christopher Drose.[14] Mr. Fisher congratulated Mr. Drose on a recent article (whose contents, according to the defendants, "parroted many of the allegations made by [Mr. Fisher] hi this action and in the withdrawn" Second Amended Complaint, discussed above).[15] More to the present point, in this email Mr. Fisher identified himself as a "long time [sic] judicial adversary" of Mr. Honig and Mr. Brauser (among other people); he accused these men of "breach[ing] ahnost eveiy agreement and eveiy regulation that confronted them"; and he told Mr. Drose that he had filed an SEC whistleblower complaint and "multiple Federal and State lawsuits against them."[16] Mr. Fisher suggested that the defendants' "strategy is to bankrupt. . . then adversaries (me).[17] He ended by accusing the defendants of employing "unscrupulous" lawyers who themselves "may be indicted."[18]

         2.3 The Buhl Article

         The third challenged item is another journalist's report. On November 8, 2016, reporter Teri Buhl emailed Mr. Honig's attorneys and wrote:

I am going to report on on [sic] Daniel Fisher being interviewed by the FBI in Northern California and being told he is a victim in a securities fraud case related to The Frost Group (which documents show equals Honig, Frost, Brauser). A check in the FBI victims identification database yesterday show[s] the investigation is still active.

         Let me know if Barry [Hoiiig] wants to comment.[19]

         According to the defendants, Ms. Buhl published her stoiy the same day. Again according to the defendants, she cited an "unnamed source" as telling her that the FBI was investigating Mr. Honig and Mr. Brauser, that the source was a "potential victim of securities fraud, " and that the "only securities" the victim had were Biozone's.[20] The defendants suggest that Ms. Buhl's source was Mr. Fisher. Strictly speaking, though, even as the defendants relate matters, Ms. Buhl did not name her source.

         2.4 The Pederson Letters

         Finally, Mr. Honig and Mr. Brauser point to two letters - one dated September 9, 2016 and the other September 29, 2016 - that Mr. Fisher's attorney, Lee Pederson, sent to a member of CoCiystaFs board of directors.[21] Neither letter names Mr. Honig or Mr. Brauser.[22] Both letters, however, reiterate assertions that figured into this case, including that something called "the Frost gang" engaged hi alleged "pump and dump fraud involving" Biozone.[23] And, as the defendants fairly observe, the second letter made allegations that closely minor those made in the Second Amended Complaint discussed earlier."[24] Mi" Pederson copied both letters to the SEC Office of the Whistleblower, and his second one to the U.S. Attorney General as well."[25]

         2.5 The ...

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